No case without cause – NSW Supreme Court rejects negligence claims against solicitors

On 10 May 2012, the first plaintiff, Mr Fussell, entered into a contract to purchase a property in the outer suburbs of Sydney. The vendor was Mr Lockrey. The parties agreed on a delayed settlement of five years, being 10 May 2017. In the meantime, and in conjunction with the contract, a lease was entered into between the second plaintiff, Blue Star Trading Corporation Pty Ltd, as the lessee and Mr Lockrey as the lessor for a period of six years.

Mr Hanrahan acted for Mr Fussell in relation to the various agreements with Mr Lockrey from 2012 to 2016. Mr Brown was then subsequently retained by Mr Fussell in lieu of Mr Hanrahan, and had acted for Mr Fussell until Mr Lockrey’s death.

Unbeknownst to Mr Fussell, there had been two issues with respect to the contract.

Issue 1 – the life tenancy

Mr Lockrey was elderly and wished to continue living in the house until he died. The arrangement was that he would have had a life estate over the house with the remainder to the first plaintiff on his death. However, the life estate was effectively over part of the land only. Section 23F(2) of the Conveyancing Act 1919 (NSW) provided that the Register General could refuse to register a transaction over part of the land unless the part of the land was shown on a current plan or was part of a proposed plan of subdivision. The part of the land containing the house was neither. 

This meant that it was not possible to grant Mr Lockrey a life tenancy over part of the property because of section 23F of the Conveyancing Act.

Issue 2 – clause 33.2

Clause 33.2 of the contract provided:

Without in any manner negating limiting or restricting the rights or remedies which would have been available to the parties at law or in equity had this special condition not been included, should either party prior to completion:

33.2 die or become mentally ill, then in the case of the vendor or the purchaser either party may rescind this contract by notice in writing forwarded to the solicitor for the other party and this contract shall be at an end and the provisions of clause 19 shall apply;

In other words, if the contract did not settle and then Mr Lockrey died, the contract could be rescinded.

The contract did not settle on 10 May 2017 as planned, and on 12 May 2017, Mr Lockrey died. On 18 May 2017, Mr Lockrey’s solicitor/executor sent a notice purporting to rescind the contract. As a result, Mr Fussell commencing proceedings seeking specific performance of the contract. This went to an appeal, with the ultimate result being that the executor was entitled to rescind the contract.

On 2 May 2018, the plaintiffs commenced proceedings against Mr Hanrahan. On 8 July 2021, the plaintiffs amended the statement of claim to join Mr Brown as a defendant.

The plaintiffs alleged that Mr Hanrahan breached his duty of care because he had:

1. failed to advise the plaintiffs of the presence and effect of clause 33.2, and 
2. failed to advise the plaintiffs that it was not possible to grant Mr Lockrey a life tenancy over part only of the property by virtue of section 23F of the Conveyancing Act. 

The plaintiffs alleged that Mr Brown had breached his duty of care because he had:

1. failed to advise the plaintiffs of the presence and effect of clause 33.2 until after Mr Lockrey’s death; and
2. failed to arrange settlement of the contract prior to Mr Lockrey’s death.

The plaintiffs further alleged that Mr Hanrahan’s breaches caused the plaintiffs to lose the opportunity to delete or amend clause 33.2 to avoid rescission, and lose the opportunity to have the contract without the problem relating to the life estate; whereas, Mr Brown’s breaches were alleged to have caused a loss of opportunity to achieve an early settlement before Mr Lockrey died.

Claim again Mr Hanrahan

Breach

The Court found that Mr Hanrahan had breached his duty of care by failing to advise of the effect of clause 33.2. Mr Hanrahan sought to make the argument that clause 33.2 had already been raised with Mr Fussell (albeit not explained) and because its effect was self-evident, no advice or explanation needed to be given. The Court rejected this argument, referring to Macindoe v Parbery (1994) 6 BPR 13. This case is the authority for the proposition that a solicitor has a duty to warn a purchaser about anything unusual in a contract that may affect the purchaser obtaining the benefit of the contract

The Court also found that Mr Hanrahan had breached his duty of care by failing to advise the plaintiffs about the effect of section 23F. The Court considered the possibility that equity would be able to intervene to uphold the contract, and ultimately found that section 23F was always going to be an issue that had not been dealt with before signing the contract.

Causation

Despite breach being established, the Court determined that it was not causative of any loss.  

The plaintiffs sought to argue that Mr Lockrey would have agreed to the deletion of clause 33.2 because he was old and unwell, he wanted to sell the property before his death, he may have had difficulty finding another purchaser and he had a close relationship with Mr Fussell.

Mr Lockrey’s solicitor gave evidence that she would have advised Mr Lockrey to not delete clause 33.2 because it was necessary for a long settlement period where there was more chance of Mr Lockrey dying before settlement. Mr Hanrahan also gave evidence that Mr Lockrey would have followed his solicitor’s advice and was content to leave all matters in the hands of his solicitor, particularly as Mr Lockrey had said the following about the contract: ‘I just signed it and left. I couldn’t be bothered reading it’. The Court ultimately accepted this evidence and found that causation had not been established regarding clause 33.2.

The Court also found that there was no causation in respect of the failure to advise regarding section 23F. The plaintiffs argued that had there been no breach, they would have instructed Mr Hanrahan to negotiate with Mr Lockrey’s solicitors to rectify the life estate issue. Ultimately, the Court preferred the evidence that Mr Lockrey did not want to remove the life estate and wanted to live on the property until he died. 

Claim against Mr Brown

Breach/Causation

The Court found that Mr Brown had already drawn clause 33.2 to Mr Fussell’s attention. This meant that Mr Brown would only be found to have breached his duty of care if he failed to take steps to bring about the settlement before Mr Lockrey died. In that regard, the Court found that the only way that settlement could have occurred before Mr Lockrey’s death is if Mr Fussell was prepared to pay substantially more than the contract price for the property. However, it was evident that Mr Fussell did not have the funds to complete the purchase because parts of the funds he was relying on were the funds being borrowed from the bank. The bank indicated that it was not prepared to lend the money whilst the transfer remained in the form it had been executed as required by the vendor. Importantly, the plaintiffs did not lead any evidence about how Mr Fussell would have alternatively sourced the funds. 

Separately, the evidence demonstrated that Mr Lockrey was only prepared to settle before his death if Mr Fussell paid an extra $1.5 million. However, Mr Fussell had made it clear in his evidence that he was not prepared to pay those extra amounts that had been demanded for an early settlement. 

The Court’s findings above also necessarily lead to the conclusion that causation was not established.